Small Business Accounting Vs. Bookkeeping

If your small business is growing, your staff will have to grow to keep up with the amount of work coming in. But what kind of employees do you need to hire? Certainly, this depends on the nature of your small business and the industry it operates in.

One type of employee that can help across most small businesses is someone who deals with your business’s finances—an accountant or a bookkeeper. But, how do you choose between them? Is there even much of a difference between an accountant and a bookkeeper?

This post will address the main differences (and the important overlap) between these two positions so that, when it comes time to hire one, you’ll know exactly who you’ll need.

Accounting Vs. Bookkeeping—A Question of Scope

While it’s true that both bookkeepers and accountants work with your business’s finances, it’s important to delineate the roles and responsibilities of each to get a clearer picture.

Accountants Are Top-Down

Accountants operate with the big picture in mind. They are not concerned with the day-to-day financial operations and instead focus on long-term financial strategy and—perhaps most importantly—preparing your business for tax season.

In order to do their job effectively, however, accountants need accurate, detailed, and well-organized financial data and recordkeeping. That’s where a good bookkeeper comes in handy.

Bookkeepers Are Bottom-Up

Unlike accountants who are big-picture-oriented, bookkeepers handle your business’s day-to-day financial recordkeeping, among other tasks. Bookkeeping is an essential role, whether carried out by a business owner using bookkeeping software or a bona fide in-house bookkeeper.

Not only are a bookkeeper’s records necessary to help accountants prepare for tax season, but they help business owners develop, maintain, and adapt their business plans.

Here is a more specific list of what bookkeepers can do:

• Recording and filing of financial transactions
• Tracking accounts payable and receivable
• Creating, tracking, and collecting invoices
• Handling payroll (sometimes)
• Maintaining ledgers for whole business as well as for departments and subsidiaries

Using the data compiled by bookkeepers, business owners can generate important insights like how much shipping cost last month, or how long does it take for clients to pay their invoices. Bookkeepers are essentially the librarians of a vast collection of powerful financial insights you can use to improve your business’s prospects.

Also, the success of your accountant depends exclusively on the strength and accuracy of your financial records. In this way, your accountant’s performance will only be as good as your bookkeeper’s abilities.

Question: Which Role is More Important?

Stick with this analogy—it will make sense in the end! An accountant is like the gas in your car. As a flammable liquid, it holds tremendous potential energy, but by itself sitting in a gas tin, it’s pretty useless. Without a car, or roads for that car to drive on, it’s basically only a flammable liquid.

On the other hand, a bookkeeper is the infrastructure—the streets, lights, signs—and the car itself. For you to drive to where you need to go (a metaphor for your business), you need a car, gas to power it, and safe roads to travel on.

In this way, bookkeepers and accountants are like two sides of the same coin, or two parts of the same important process. Neither is “more important,” as they are both necessary. However, one depends on the other a lot more in order to do their job. Accountants need bookkeepers (just like gas needs combustion engines) and not the other way around.

That’s why if the question comes down to “who do you hire first?” it’s essential to get your bookkeeping in order before hiring an accountant.

Bookkeeping is The First Step

There are many methods for practicing good bookkeeping—whether through using software, hiring a bookkeeper on staff, or outsourcing the role to a third party. The important part is not how you practice bookkeeping but whether you practice it or not.

How you do it depends on your business’s needs. You might feel comfortable running bookkeeping software, or you might not have the time to spare and need to delegate that role to someone else. You might find it necessary to have an in-house bookkeeper because your industry is highly specialized, and you need a bookkeeper with a  specific set of skills.

The how isn’t as important as the sheer necessity of doing it.

Roni Davis is a writer, bookkeeper, and legal assistant operating out of the greater Philadelphia area. She writes for the Law Offices of Todd Mosser, a Philadelphia criminal appeals lawyer.

Photo by RODNAE Productions from Pexels